NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

Corporate Governance Framework: SEBI LODR Board Rules

Updated 11 October 2026

Corporate governance is the system of rules and practices by which a company is directed and controlled, built on fairness, transparency, accountability and responsibility. In India, SEBI LODR sets board composition, independent director and committee rules for listed companies. To solve questions, identify the body (board or committee) and apply its minimum proportion.

Understand Corporate Governance Framework

Corporate governance is how a company is run and held to account. It sets out who takes decisions, who checks them and how shareholders are protected. For a research analyst, good governance lowers the risk that insiders benefit at the cost of minority shareholders.

The core principles are fairness (equal treatment of all shareholders), transparency (timely and honest disclosure), accountability (the board answers to shareholders) and responsibility (acting in the long-term interest of the company and stakeholders). Exam questions often ask you to match a situation to one of these.

In India, governance rules for listed companies come mainly from the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, called SEBI LODR. LODR adds listing-specific rules on the board, committees, related party transactions and disclosures.

The board of directors is the centre of the framework. It mixes executive directors (who work in the company) and non-executive directors. Independent directors have no material link with the company, promoters or management. Their job is to bring an outside view, guard minority interests and challenge management, especially on related party deals, audit and pay.

Work is split across board committees: Audit, Nomination and Remuneration, Stakeholders Relationship and Risk Management. Each has rules on minimum size, share of independent directors and who chairs it. Most exam marks come from remembering these proportions and limits.

Key formulas to remember

Four principles of governance: Fairness, Transparency, Accountability, Responsibility; Match the case to the principle: unequal treatment of shareholders is fairness, late or wrong disclosure is transparency.
Independent directors on the board: Non-executive chairperson: at least 1/3 independent. If the non-executive chairperson is a promoter, or is related to a promoter or to persons occupying management positions at board level or one level below the board, or the chairperson is an executive director: at least 1/2 independent.; Applies to listed entities under LODR. The chairperson's status decides the proportion.
Women directors: At least one woman director; top 1,000 listed entities by market capitalisation need at least one woman independent director; Do not mix up woman director with woman independent director.
Board meetings: At least 4 meetings a year; gap between two meetings not more than 120 days; The same four-meeting and 120-day limits apply to the Audit Committee.
Audit Committee: Minimum 3 directors; at least 2/3 of members independent directors; chairperson independent; at least one member with financial expertise; Quorum is the higher of two members or one-third of members, with at least two independent directors present.
Nomination and Remuneration Committee: Minimum 3 directors, all non-executive; at least 2/3 of members independent directors; chairperson independent; Every member must be non-executive.
Stakeholders Relationship Committee: Minimum 3 directors; at least one independent director as member; chairperson is a non-executive director; Required under Reg 20 of LODR. It applies to the top 1,000 listed entities by market capitalisation, and to other listed entities as the regulation provides, so do not assume it applies to every listed entity. It handles grievances of shareholders and other security holders.
Risk Management Committee: Applies to top 1,000 listed entities; minimum 3 members; majority are board members; at least one independent director; meets at least twice a year, gap not more than 210 days; Note the 210-day gap, different from the 120 days for the board.
Independent director term: Up to 2 consecutive terms of 5 years each; then a cooling-off period of 3 years; Appointment of an independent director needs shareholder approval. Re-appointment for a second term needs a special resolution of shareholders. Continuing beyond age 75 also needs a special resolution. During the 3-year cooling-off period, the person cannot be appointed in, or associated with, the company in any capacity, directly or indirectly.
Directorship limits: A person can serve as an independent director in at most 7 listed entities; if a whole-time director in any listed entity, in at most 3 listed entities as independent director; Know both limits; they are common trap options.

How to solve Corporate Governance Framework questions

Most governance questions test one rule or one principle. Use this method to find it quickly and avoid trap options.

1Read the last line of the question first to see what is asked: a proportion, a count, a time gap, a chairperson rule or a principle.
2Identify the body involved: the full board, Audit, Nomination and Remuneration, Stakeholders Relationship or Risk Management Committee.
3Check the chairperson status if the question is about the board. A non-executive chairperson who is not a promoter and not related to a promoter or to senior management (board level or one level below) means one-third independent; an executive chairperson, or a non-executive chairperson who is a promoter or related to a promoter or to such senior management, means one-half.
4Recall the exact rule for that body from your formula list, including the type of director allowed (non-executive or independent).
5For numerical questions, multiply the total members by the required fraction. Round up if you get a fraction, since you cannot have part of a director.
6Compare with the options and remove those that give a rule of a different body, for example 210 days for a board meeting.
7If it is a principle question, match the facts to fairness, transparency, accountability or responsibility, and choose the closest.

Quickest way: Rule-card recall for governance questions

When to use it: Use when you have under a minute per question and the options contain similar-looking numbers.

Keep one memory line: Board 1/3 or 1/2; Audit 2/3; NRC 2/3; SRC 3 directors with at least one independent; Risk at least one independent.
Keep time gaps in mind: 120 days for Board and Audit, 210 days for Risk.
Spot the body named in the question and pull only its rule.
Do the fraction in your head: total × 1/3, ×1/2 or ×2/3, rounded up.
Eliminate options that use the wrong body's number, then pick the remaining one.

Common mistakes in Corporate Governance Framework

Applying one-third independent directors to every board
Students remember the common rule and forget the chairperson condition.
Fix: Check the chairperson first. An executive chairperson, or a non-executive chairperson who is a promoter or related to a promoter or to senior management (board level or one level below), means at least half independent.
Mixing the 120-day and 210-day gaps
Both are in the committee rules and look alike.
Fix: Board and Audit Committee: 120 days, at least four meetings. Risk Management Committee: 210 days, at least two meetings.
Saying the Nomination and Remuneration Committee can include executive directors
Students confuse it with the full board, which has executives.
Fix: All members must be non-executive directors, and at least two-thirds must be independent.
Confusing woman director with woman independent director
The two rules are stated close together.
Fix: All listed entities need at least one woman director. The woman independent director requirement applies to the top 1,000 listed entities by market capitalisation.
Not rounding up when the fraction is not whole
Students stop at the calculator result.
Fix: Round up to the next whole director so the minimum proportion is truly met.
Treating independent directors as a legal guarantee against fraud
Students overstate their role.
Fix: Independent directors guard minority interests and add oversight, but governance quality still depends on the whole board, disclosures and enforcement.

Worked examples

Example 1

A listed company has an executive chairperson and a board of 12 directors. What is the minimum number of independent directors required under SEBI LODR? Options: (a) 3 (b) 4 (c) 6 (d) 8

Show the solution

The chairperson is executive, so at least one-half of the board must be independent.
Compute 12 × 1/2 = 6.
Option (a) 3 is wrong because it is below both the one-third minimum (4) and the one-half minimum (6), so it is insufficient.
Option (b) 4 is the one-third figure, which applies only to a non-executive chairperson.
Option (d) 8 is above the minimum and not required.

Answer: (c) 6 independent directors.

Example 2

The Audit Committee of a listed company has 6 members. What is the minimum number of independent directors it must have? Options: (a) 2 (b) 3 (c) 4 (d) 5

Show the solution

The Audit Committee needs at least two-thirds of its members to be independent directors.
Compute 6 × 2/3 = 4.
Option (a) 2 is the number of independent directors needed for quorum, not the minimum independent membership of a 6-member committee.
Option (b) 3 is half of the committee, which is below the two-thirds rule.
Option (d) 5 is more than needed.

Answer: (c) 4 independent directors.

Exam tips

Learn each committee's size, independent share, chairperson and meeting gap as a one-line card; most questions are direct recall.
Watch the word 'at least' in options. A rule gives a minimum, so a bigger number is not the required one.
For principle questions, ignore the story and ask which of fairness, transparency, accountability or responsibility is broken.
Remember that NISM-Series-XV has negative marking of 25% of the marks for a question, so skip only if you cannot remove two options.
Link governance to analysis: questions may ask how weak independence or poor disclosure affects your view of a company.

Practice questions from Company Analysis - Business and Governance

Corporate Governance Framework: frequently asked questions

What are the principles of corporate governance?

The commonly stated principles are fairness, transparency, accountability and responsibility. Fairness means equal treatment of shareholders. Transparency means timely and accurate disclosure. Accountability means the board answers to shareholders. Responsibility means acting in the long-term interest of the company and its stakeholders.

What is the role of independent directors in India?

Independent directors have no material link with the company, its promoters or management. They provide an objective view, protect minority shareholders and oversee areas such as audit, related party transactions and remuneration. They also hold at least one meeting a year without non-independent directors.

How many independent directors must a listed company's board have?

If the chairperson is non-executive, at least one-third of the board must be independent. If the non-executive chairperson is a promoter, or is related to a promoter or to persons in management positions at board level or one level below, or the chairperson is an executive director, at least half must be independent.

Which committees must a listed company have under SEBI LODR?

The main ones are the Audit Committee, the Nomination and Remuneration Committee and the Stakeholders Relationship Committee. The Stakeholders Relationship Committee and the Risk Management Committee apply to the top 1,000 listed entities by market capitalisation, and the Stakeholders Relationship Committee also applies to other listed entities as Reg 20 provides. Each has its own rules on size, independent members and chairperson.